• Japan’s ruling coalition secures two-thirds majority; USDJPY ticks higher overnight
  • US Senate approves budget, unlocking path towards tax reform
  • ECB’s meeting on Thursday takes centre stage this week

Japan’s ruling coalition secured a two-thirds majority in Sunday’s lower house elections, prompting USDJPY to tick slightly higher at the open and Japanese equities to surge.
Barclays Research think that the election result “… strengthens the prospects for: 1) continuity in monetary policy for now, including the reappointment of BoJ Governor Kuroda; and 2) a consumption tax hike in October 2019, but a neutral fiscal policy stance on balance”.
In the US, the Senate approved the budget resolution for the fiscal year 2018 on Friday, which includes instructions for budget reconciliation that would allow the approval of GOP tax cuts without the need for any Democrats’ minority votes.
Elsewhere, GBP was buoyed on Friday with market focus turning to the positive / upbeat headlines from Brussels. This week, PM May addresses Parliament on Brexit progress this afternoon, and we also watch for UK GDP on Wednesday. GBPUSD support at 1.3080, ahead of 1.3000-30 area, with resistance at 1.3230 ahead of 1.3340. EURGBP support at 0.8900 ahead of 0.8820-25 trend line area and 0.8745-50.
The week ahead will see many central bank meetings (Riksbank, Norges Bank and BoC), with the ECB taking centre stage on Thursday. The Governing Council is widely expected to announce changes to its QE Programme, and consensus expectations have shifted from a six months extension of 40bn towards a longer extension.
Barclays Research “… do not see compelling risk/reward in pre-positioning in EUR ahead of the ECB announcement, given shifting expectations and difficulty in gauging how the market is pricing the parameter changes”.